When expenses used to produce income- all of them- should be matched in a consistent manner against that income, this is referred to:
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A. B. C. D.B
The correct answer is B. Accrual basis accounting.
Accrual basis accounting is a method of accounting where revenues and expenses are recognized when they are earned or incurred, regardless of when the cash is actually received or paid. Under this method, expenses that are used to produce income should be matched against the income in a consistent manner, which means that expenses should be recognized in the same period as the income they helped generate.
For example, if a company earns $10,000 in revenue in January, and it incurs $5,000 in expenses to generate that revenue, the expenses should be recognized in January as well, even if the actual payment for those expenses is made in February. This ensures that the financial statements provide an accurate picture of the company's financial performance during the period in question.
Matching expenses to the period in which they are incurred is a fundamental principle of accrual basis accounting. This principle helps to ensure that financial statements accurately reflect the financial performance of a business over a given period. Failure to match expenses to the period in which they are incurred can lead to distorted financial statements that do not accurately reflect the financial performance of the business.
In summary, when expenses used to produce income are matched in a consistent manner against that income, this is referred to as accrual basis accounting. This method of accounting ensures that expenses are recognized in the same period as the income they helped generate, resulting in financial statements that accurately reflect the financial performance of the business over a given period.